Wedbush Securities Inc. out of Los Angeles has agreed to pay a fine of $850,000 to the Financial Industry Regulatory Authority to settle allegations that the firm misled clients for years into believing they were earning interest on defaulted corporate and municipal bonds.
FINRA stated that Wedbush sent incorrect account statements to approximately 610 costumes each month between 2013 and 2018. Despite the fact that Wedbush knew that bonds in the customers’ accounts had defaulted (stop making interest payments), the Wedbush account statements incorrectly reflected that the defaulted bonds were making interest payments.
The failure to notify customers of defaults on 38 different bonds would more typically implicate MSRB Rule G-47 (time-of-trade disclosure obligations) and related MSRB supervisory rules, rather than FINRA Rule 2231 (Customer Account Statements). Under Rule 2231, all general securities member firms are required to send customers accurate account statements at least once every calendar quarter, including a complete description of securities positions, money balances, and account activity. Effective January 1, 2024, FINRA expanded Rule 2231 to include eight supplementary materials sections, strengthening disclosure obligations around externally held assets, carrying agreements, and the accuracy of information presented on customer account statements. Firms that rely on third-party vendors to distribute account statements remain fully responsible for ensuring those statements contain all required and accurate disclosures.
The $850,000 fine includes not only the bond issue but also separate allegations that approximately 15,000 Wedbush customers not receive mandatory disclosures for a decade.
The U.S. Securities and Exchange Commission requires that the business submit yearly disclosures of its privacy policies from 2010 through 2020. According to FINRA, the firm failed to do so from 2010 through 2020.
FINRA also criticized Wedbush for allegedly neglecting to advise customers about the routing of orders or to provide yearly notifications to non-institutional investors about the risks and processes associated with trading stocks on margin. FINRA said that the disclosure breaches included a communication problem with a Wedbush vendor responsible for providing customer account statements.
FINRA said that “Wedbush was responsible for supplying the vendor with mandatory notifications and disclosures to include with client account statements,” but failed to do so.
Contact an Experienced Stockbroker Fraud Lawyer
If you were misled by Wedbush’s faulty account statements, contact an investment fraud lawyer at at Kaplan Rothstein Prüss Peraza, P.A. for a free consultation. KRP2 represents investors throughout the United States and Latin America in stockbroker fraud and brokerage firm misconduct cases. Our offices are located in Miami, Los Angeles, West Palm Beach, New York, Naples, and we represent clients nationwide. Translation services are available.
